Michigan Governor Rick Synder signed HB 4003 on June 27, 2014. Sponsored by Rep. John Walsh, the bill allows the Department of Treasury to “forgive taxes if the taxpayer did not owe the amount initially due or is unable to pay the tax.” Lothamer President Jesse Lothamer has personally worked on HB 4003 over the past three years.
Tell me about the Michigan Offer In Compromise (OIC) bill that Governor Synder signed into law; what is it and why is it important for Michiganders?
House Bill 4003 amends the Revenue Act to establish an offer-in-compromise program, which authorizes the State Treasurer to compromise the payment of a tax, unpaid account, or amount due the State subject to administration under the Act, if a) doubt exists as to the taxpayer’s liability or collectability or b) there is a substantial probability that a compromise would further the fair and efficient administration of the tax.
The bill also does the following:
• Allows the Michigan Department of Treasury to revoke a compromise under certain circumstances.
• Provides that a taxpayer's federal compromise of tax would be prima facie evidence that the taxpayer was entitled to a compromise of a comparable Michigan tax liability.
• Requires the State Treasurer to file a written report if a tax liability were compromised, unless the compromise related to a civil case involving less than $25,000.
• Requires the State Treasurer to establish guidelines and procedures, including application fees and procedures to allow for payment plans.
• Requires the Department to disclose return information to the public as necessary to permit inspection of any accepted offer-in-compromise.
When does the bill become law?
The bill becomes law on January 1, 2015.
If over 40 states plus the IRS already have OIC programs in place, why is/was Michigan so far behind?
Both the Department of Treasury and former Gov. Jennifer Granholm previously opposed an OIC program. Additionally, the current Act prohibits the State Treasurer and Treasury Department employees from compromising or reducing the taxes due or claimed by the State or unpaid accounts or amounts due to any department, institution, or agency of State government, although the Treasurer or an employee may compromise interest or penalties, or both.
What programs are currently offered by Michigan to help individuals pay back state and local taxes?
Installment agreements, and in some instances currently non-collectible status. The Treasury may also compromise interest or penalties although this is rare.
You currently represent clients pursuing Offer In Compromise (OIC) agreements with the IRS because of federal tax issues. For those of us unfamiliar with the scale and severity of their economic and emotional hardship, what does a successful OIC mean to them?
It means everything; a fresh start. Relief from the burden and worry of taxes owed to the Government. The ability to keep one’s home or business. The ability to get married or buy a car. Release of tax liens. Financial freedom.
Who will qualify for the Michigan OIC program? What are the necessary conditions for qualification?
If you qualify for an Offer with the IRS, you will qualify for an offer from the State of Michigan. If you have an Offer accepted by the IRS it is prima facie evidence that the taxpayer is entitled to a compromise of a comparable Michigan tax liability.
What type(s) of taxpayer stands to gain the most from these programs? Business owners? Individuals?
Both business owners and individuals can benefit from these programs.
How much might they stand to save?
It all depends on their financial circumstances. But if they are eligible for the program, the amount of the settlement will be less than what is owed.
On the other hand, how will the state benefit financially if the bill becomes law?
The bill would have an indeterminate impact on State revenue. The bill would increase State revenue to the extent that compromises on taxes due resulted in collection of revenue that otherwise would have been uncollectible.
The Department of Treasury would incur additional administrative costs to develop and implement program guidelines, establish an independent administrative review of some taxpayer offers and an appeals process, and meet reporting requirements. The bill would permit application fees, which would partially offset the administrative cost of the program; however, any fee revenue collected could be regarded as reducing the tax payments that otherwise would be collected.
Can taxpayers apply for an OIC directly? Are there benefits to using a tax resolution firm?
An individual would certainly be able to independently apply for an Offer; however, most offers that are done this way are rejected. Not only because the person does not qualify but because they submit incomplete or incorrect information. When taxpayers work with Lothamer to resolve their back tax problems, they ensure that an accurate and complete offer is being filed. Additionally, because an Offer also involves directly dealing and negotiating with the Taxing entity, the negotiator should be an experienced professional (a tax attorney, CPA, and/or Enrolled Agent).